BY ABDUREZAK MOHAMMED
Though very much familiar in other parts of the world, stock market is only used in 29 countries in Africa. Still dozens of prominent countries on the continent do not have stock exchange with Ethiopia, one of the largest economies in the East Africa, being one of these countries.
And currently, the country is planning to start capital market next year. To pave a way for its beginning, a new draft capital market proclamation is on the pipeline and will see approval shortly. If approved, it would be a millstone for the growing economy that is expanding in filling the legal framework loopholes to start capital market.
In fact some argue that issuing stock market proclamation is a long overdue given its importance to growing economies like Ethiopia. The long-awaited proclamation is currently on the table of the Trade and Industry Affairs Standing Committee of the House of Peoples’ Representatives for further scrutiny.
The draft bill explains in detail that issuing a capital market proclamation has become necessary to establish a capital market to support the development of the national economy through mobilizing capital, promoting financial innovation, and sharing investment.
And also, it is important to adopt a legal framework for the regulation and supervision of the capital market to ensure the fairness, integrity, and efficiency of the market and protect investors.
According to the proclamation, it is essential to set uniform requirements for the regulation of issuers who desire to raise capital from public investors. It is also vital to adopt a legal framework for effective monitoring and surveillance of the capital market to detect, mitigate, and prevent systemic risk to the country’s financial system.
According to a press statement from the Office of the Prime Minister regarding the issue introducing a capital market in Ethiopia is important for the economic development of the country and prosperity.
The statement also indicated that companies will be able to raise funds by selling shares, stocks, and bills to finance promising investment projects.
In his recent interview with “Policy Matters” (a special series and filmed by the office of the Prime Minister of Ethiopia) on the new draft proclamation, Minale, Senior Micro Economy Advisor at the National Bank of Ethiopia (NBE) and the Office of the Prime Minister of Ethiopia (PMO) “Ethiopia is one of the largest economies without stock exchange and the capital markets.
Adding that the capital markets initiative in Ethiopia was dormant for about 50 years. “So, drafting the proclamation is redirecting something that has been dead for about fifty years.”
He indicated that that proclamation is necessary because the country does not have a legal framework that establishes key institutions for capital market development that legalize the trading of security.
As to him, drafting the proclamation has emanated from the home-grown economic reform program that the government launched a year ago whereby macroeconomic policy, structural and sectoral reforms were the main pillars of this reform.
The development of capital markets was also one of the pillars because finance is a key for the economic development of the country.
“The capital market proclamation envisions maximum government ownership of 25 per cent, but the rest 75 per cent would be owned by the private investors. “It is vital for investors as it is a highly technical market. It is also important to build public confidence.”
He stated that the legal framework is being devised to secure the financial transaction in the interbank money market and others.
Stock market has also an important role in enabling local industries to be competent at local and international levels besides boosting productivity and improving export trade.
The government is carrying out various activities to modernize the monetary policy framework that uses market-based instruments and also to foster the development of markets as well as improve the effectiveness of the monetary policy said Melese.
In condition of anonymity, an expert who is close to the issue told The Ethiopian Herald previously that capital market serves as a bridge to link organizations that have a shortage of finance with individuals, groups or organizations that have extra money.
The expert also said that the capital market facilitates the relationship between the real economy and the financial market. In this regard, banks, investors, financial institutions, and other related organizations can be involved in the capital market, as to the expert.
The expert further noted that capital market is used to develop investments and the culture of saving. It also enables peoples to be beneficiaries of economic development.
In an exclusive interview with The Ethiopian Herald, Kibur Gena, an economist and financial market expert, said that he is sceptical about the benefits of introducing a capital market in Ethiopia.
“Shareholders have to have adequate knowledge of the changes in the stock market’s financial system, he said, adding that it is also vital to scrutinize the registration process and the institutions’ financial status to be a member of the stock market.”
He also urged that financially bankrupted organizations should not be allowed to be registered in the capital market. “The eligible companies to be involved in the capital market should be the ones that made a profit for the past three to four consecutive years.”
According to him, in the stock market tradition, one can purchase a share and he/she can resale it within days or weeks. Countries such as Kenya and Nigeria have a stock market experience that extends to almost a century. However, it has not yet played a significant role in their economic growth.
“Very few organizations involve in the capital market and it does not seem lucrative to others. Government supports the establishment of capital markets as it sells shares and raises finance to fund mega projects,” he noted.
He also indicated that his experience in Ethiopia, most local investors have very limited knowledge of the stock market. “They only get information from the international media about the stock market in the US but they don’t know who is really benefiting from the market there. They assume that they could use the stock market when they want to sell their shares.”
On the other hand, the renowned financial economist Ermyas Amelga rather portrays a rather positive perspective of the introduction of the market bill. He said that essential issues have been included in the bill and it is an astounding document.
According to him, the stock market is a common phenomenon across the globe. Many countries in the world have capital markets while some countries including Ethiopia are without capital markets.
He also stated that it is not necessary to discuss the matter with stakeholders and the private sector as it is not as such burning issue at this time. “It is almost similar to establishing other financial firms and it is more of a professional exercise which has its own science.”
The draft capital market proclamation stipulates the establishment of the Capital Market Authority as an autonomous federal government authority with its own juridical personality, and the Authority will be accountable to the Prime Minister of the Federal Democratic Republic of Ethiopia.
The Ethiopian Herald February 7/2021
